Expecting a Tax Refund this year? Not so fast!
I thought my refund was supposed to be BIGGER?
Tax season is well underway and many filers are eagerly awaiting their return.
Those that changed their withholding based on the new tax law may question why their return is smaller than prior years. The good news is that you have been receiving more take-home pay in each paycheck throughout 2018. While the refund may seem like less, filers have been receiving more money up front throughout the year instead of receiving it in a lump sum through a return.
Unfortunately, many Americans have been blind-sided by a tax bill instead of a tax refund as result of not withholding enough. Since this is the first season under Trump's new tax law that passed in late 2017, those who did not adjust their with holdings are finding that their refund is less or might even find yourself having to pay Uncle Sam.
If you find yourself in a tight spot with money and now owe the IRS, do not worry. We can help you fix the problem and cover yourself for future tax liabilities. Also, it's not all that bad to owe at the end of the year. Why give the IRS an interest year-free loan?
2018 Penalties will be waived by the IRS
Luckily, the IRS announced that it would waive penalties for some taxpayers of the 2018 season under the circumstance that 85 percent of the tax was paid through withholding, quarterly estimated tax, or both. This is 5 percent less than what filers were required to pay in previous years.
The safe harbor rule calls for you to have paid in the lessor of 90% of your current year's tax or 100% of your prior year's liability.
For the IRS to make this exception, they are admitting to some of the blame. The first mishap was due to the updated withholding tables not being updated until late February 2018.
We are finding that especially in high taxed states and cities that the new tax cuts and jobs act actually benefited the average middle-class worker due to the increase in the Alternative Minimum Tax (AMT) threshold. The state and local tax (SALT) is at $10,000 now, but if you paid AMT in the past, you did not receive the benefit of the SALT deduction. This is the common misconception with the public regarding the SALT cap. Between the drastic increase in the AMT threshold, along with the 3% decrease in tax brackets, and factoring in some other variables, the average middle-class family in Westchester County is actually saving money.
Now, this obviously does not apply to everyone and it will look deceiving and hard to fathom for many come this tax season when you get your returns done because it is a fact that overall refund returns are down roughly 8%. It's crucial to adjust your withholding's according to coincide with your spending and saving habits. Some like to use their tax refund for a vacation. Other's enjoy earning refunds of as little as possible. Whatever it may be, we can help you with this!
It's important to speak up and ask your tax professional questions with all the changes happening this filing season. We have been closely following and analyzing the change in the new tax law since the bill passed on December 22nd, 2017. Leave it to us to help guide you make the right decisions when it comes to this year's tax filing and setting yourself up for success next year.
If you have concerns, make sure that they are heard so that they can be resolved as soon as possible.
-Keith Boyer, CPA